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The Political Economy of Unilateral Trade Liberalization: The Case of Chile

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  • Sebastian Edwards
  • Daniel Lederman

Abstract

Chile has become a model for reforming economies throughout the world. The purpose of this paper is to analyze the political and economic circumstances surrounding Chile's unilateral trade liberalization during five stages (covering the period 1974-1990s),each being characterized by different combinations of compensation schemes that were used to raise support and reduce opposition to the reforms. In less than 4 years (1975-1979) Chile eliminated all quantitative restrictions and exchange controls and reduced import tariffs from an average in excess of 100% to a uniform 10% tariff. Later the tariff was temporarily raised to 35% in the aftermath of a severe economic crisis (1983-1984), but was then reduced to 11% by 1991. This liberalization was implemented simultaneously with other reforms, including an effort to eliminate a stubborn inflationary process, financial reforms that ended decades of financial repression, and a massive privatization program. We investigate the role played by ideas, interests and institutions. More specifically, we examine the role played by the 'reform team' investigate some of the distributive consequences of the reforms, and analyze the ways the government used to maintain a minimum level of support for the liberalization process. A recurrent question is whether authoritarian governments are sensitive to political considerations when implementing major policy changes. We also present econometric results obtained by using household-level survey data to analyze the effects of trade liberalization on Chile's unemployment. We conclude that during the 1970s and afterwards the Chilean authorities relied heavily on coalition building and on compensation mechanisms in order to increase the political support for the reforms.

Suggested Citation

  • Sebastian Edwards & Daniel Lederman, 1998. "The Political Economy of Unilateral Trade Liberalization: The Case of Chile," NBER Working Papers 6510, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6510
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    References listed on IDEAS

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    1. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-1187, December.
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    3. Aaron Tornell, 1995. "Are Economic Crises Necessary for Trade Liberalization and Fiscal Reform? The Mexican Experience," NBER Chapters,in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 53-76 National Bureau of Economic Research, Inc.
    4. Sebastián Edwards & Alejandra Cox de Edwards, 1996. "Trade Liberalization and Unemployment: Policy Issues and Evidence from Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 227-250.
    5. McKinnon, Ronald I., 1982. "The order of economic liberalization: Lessons from Chile and Argentina," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 17(1), pages 159-186, January.
    6. Dani Rodrik, 1992. "The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?," NBER Working Papers 3947, National Bureau of Economic Research, Inc.
    7. Cesar Martinelli & Mariano Tommasi, 1993. "Sequencing of Economic Reforms in the Presence of Political Constraints," UCLA Economics Working Papers 701, UCLA Department of Economics.
    8. Drazen, Allan & Grilli, Vittorio, 1993. "The Benefit of Crises for Economic Reforms," American Economic Review, American Economic Association, vol. 83(3), pages 598-607, June.
    9. Dornbusch, Rudiger & Edwards, Sebastian, 1990. "Macroeconomic populism," Journal of Development Economics, Elsevier, vol. 32(2), pages 247-277, April.
    10. Corbo, Vittorio, 1997. "Trade Reform and Uniform Import Tariffs: The Chilean Experience," American Economic Review, American Economic Association, vol. 87(2), pages 73-77, May.
    11. Bruno, Michael & Easterly, William, 1996. "Inflation's Children: Tales of Crises That Beget Reforms," American Economic Review, American Economic Association, vol. 86(2), pages 213-217, May.
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    13. John Williamson, 1994. "The Political Economy of Policy Reform," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 68.
    14. Cassing, James H & Hillman, Arye L, 1986. "Shifting Comparative Advantage and Senescent Industry Collapse," American Economic Review, American Economic Association, vol. 76(3), pages 516-523, June.
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    Cited by:

    1. Geir Asheim & Carl Claussen & Tore Nilssen, 2006. "Majority voting leads to unanimity," International Journal of Game Theory, Springer;Game Theory Society, vol. 35(1), pages 91-110, December.
    2. Naoko Shinkai, 2000. "Does the Stopler-Samuelson Theorem Explain the Movement in Wages? The Linkage Between Trade and Wages in Latin American Countries," Research Department Publications 4237, Inter-American Development Bank, Research Department.
    3. José I. Cuesta & Francisco A. Gallego & Felipe A. González, 2015. "Local Impacts of Trade Liberalization: Evidence from the Chilean Agricultural Sector," Central Banking, Analysis, and Economic Policies Book Series,in: Ricardo J. Caballero & Klaus Schmidt-Hebbel (ed.), Economic Policies in Emerging-Market Economies Festschrift in Honor of Vittorio Corbo, edition 1, volume 21, chapter 14, pages 351-378 Central Bank of Chile.
    4. Afontsev Serguey, 2004. "Political economy of tariff unification: the case of Russia," EERC Working Paper Series 04-12e, EERC Research Network, Russia and CIS.
    5. Philippe Legrain, 2006. "Why NAMA Liberalisation is Good for Developing Countries," The World Economy, Wiley Blackwell, vol. 29(10), pages 1349-1362, October.
    6. Pierre-Louis Vézina, 2014. "Race-to-the-bottom Tariff Cutting," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 444-458, August.
    7. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
    8. José De Gregorio, 1999. "Exchange Rate Policy in Chile since 1960: Political Economy and the Choice of Regime," Research Department Publications 3076, Inter-American Development Bank, Research Department.
    9. repec:bla:apacel:v:31:y:2017:i:2:p:3-18 is not listed on IDEAS
    10. Naoko Shinkai, 2000. "¿Explica el teorema Stopler-Samuelson el desplazamiento de los salarios? El vínculo entre el comercio internacional y los salarios en países latinoamericanos," Research Department Publications 4238, Inter-American Development Bank, Research Department.
    11. José Ignacio Cuesta & Francisco Gallego & Felipe A. González, 2013. "Local Impacts of Economic Liberalization: Evidence from the Chilean Agricultural Sector," Working Papers ClioLab 17, EH Clio Lab. Instituto de Economía. Pontificia Universidad Católica de Chile.
    12. Geleilate, José-Mauricio G. & Magnusson, Peter & Parente, Ronaldo C. & Alvarado-Vargas, Marcelo J., 2016. "Home Country Institutional Effects on the Multinationality–Performance Relationship: A Comparison Between Emerging and Developed Market Multinationals," Journal of International Management, Elsevier, vol. 22(4), pages 380-402.
    13. Veldkamp, Laura, 2009. "Learning about reform: Time-varying support for structural adjustment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 192-206, March.
    14. Esteban Puentes & Dante Contreras & Claudia Sanhueza, 2007. "Self-Employment in Chile, long run trends and education and age structures changes," Estudios de Economia, University of Chile, Department of Economics, vol. 34(2 Year 20), pages 203-247, December.
    15. Sebastian Edwards & Alejandra Cox Edwards, 2000. "Economic reforms and labour markets: policy issues and lessons from Chile," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 181-230, April.
    16. Sanjay Jain & Sharun W. Mukand, 2003. "Redistributive Promises and the Adoption of Economic Reform," American Economic Review, American Economic Association, vol. 93(1), pages 256-264, March.
    17. Edwards, Lawrence & Lawrence, Robert, 2008. "SACU tariff policies: Where should they go from here?," MPRA Paper 32865, University Library of Munich, Germany.
    18. Acharya, Sanjaya, 2011. "Making unilateral trade liberalisation beneficial to the poor," Socio-Economic Planning Sciences, Elsevier, vol. 45(2), pages 60-71, June.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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